What You Really Need to Know about Employment Data
The widely held outlook about employment is both dismal and bearish. The popular viewpoint is that there is almost no job creation. That people lose their jobs and remain on unemployment forever, or until benefits run out. That there is a small, stagnant, and unchanging pool of job openings.
While the employment situation remains poor, this consensus view, is so exaggerated that it can cloud our ability to understand and to forecast. This leads everyone to be too pessimistic about the prospects for economic growth and personal consumption.
Here are three important and overlooked facts from recent government reports.
If we could increase job creation by 10% — just 10% — we would make rapid progress on employment. Payroll employment growth has been just 500K over the last four months, or about 125K per month. This is only about what is needed to absorb new entrants to the labor force. What if employment growth was 350K instead? That is a level that many cite as meaningful for improvement.
An increase to a monthly gain of 350K requires only a 10% growth in job creation because the economy is already generating 2.3 million new jobs every month. By incorrectly focusing on the net change in jobs, the impression is wrongly created that we have an impossible task. This is a silly and common mistake, as is the persistence in basing percentage changes on the net change figure. The monthly change is a very volatile figure and it is small compared to the labor force. Try this comparison. If you were talking about a move in GDP from 2% to 3% you would not say that it was a 50% increase. This is the same thing. Percentages based upon changes are misleading.
Source: The BLS QCEW Report.
The impression is that there are no jobs. Wrong! There are about 2.8 million job openings right now. That number has been pretty constant for months. Some pundits incorrectly infer that the constant number of openings means that the same jobs are standing empty, perhaps because skills are not matched to the job needs.
This is completely wrong. While there may be some structural unemployment, you cannot find evidence in the Job Openings and Labor Turnover Report. (JOLTS). In fact, the report emphasizes the dynamic nature of changing job openings. The mistake is that many observers look just at the total of job openings. The real value of this report is what it shows about the underlying change.
I'll bet you did not know that more people quit their jobs than are fired or laid off. Almost 2 million people quit last month.
Source: The BLS JOLTS Report
Mostly we hear stories about long-term unemployment. To keep perspective, note that as of last month 57% of the unemployed were finding jobs within 26 weeks. 41% within 15 weeks.
These are still poor numbers by historical standards, but not as bad as the general impression.
Source: The BLS Employment Situation Report
I write a monthly employment preview on the Wednesday before each month's payroll employment report. I have been among the most bearish of the forecasters, but I try to keep a sense of reality.
My fellow analysts need to join me in looking more deeply into the various employment reports. The jobs picture has been very poor, but not as bad as widely thought.
Most importantly — the key takeaway:
It would only take a modest 10% increase in job creation to improve all of the data.